University of Technology, Sydney

PO BOX 123
Broadway NSW 2007

www: tio-research.eng.uts.edu.au
email: tio-research@uts.edu.au

Ms Emma Shadbolt
Assistant Director
Consumer Policy and Privacy
Department of Broadband, Communication and the Digital Economy
GPO Box 2154
Canberra ACT 2601

31 March 2011

Dear Ms Shadbolt,

Thank you for your invitation to contribute to the discussion with respect to reforms of the
Telecommunications Industry Ombudsman (TIO) Scheme dated 15 March 2011.

A cross-disciplinary research project at the University of Technology, Sydney by the

faculties of Engineering and Law is presently undertaking research into the TIO scheme.

As our research has not yet completed, we are not in a position to provide final
recommendations and detailed responses to the questions posed by the department.

We will however, take this opportunity to provide a general submission with respect to
our observations, results and analysis to date and provide some interim
recommendations for reform which we hope will be of some assistance to you.

We anticipate that this research will be completed in August 2011 and look forward to
publicising the final results and recommendations then.

Yours faithfully,

Dr Grace Li Mr Anthony Kadi Mr Liam Widdowson

Supervisor and Senior Co-Supervisor and Senior Postgraduate Investigator
Lecturer Lecturer

Faculty of Law Faculty of Engineering and IT Faculty of Engineering and IT

UTS UTS UTS

This study has been approved by the University of Technology, Sydney Human Research Ethics Committee.

The views represented in this submission are those of the authors and not necessarily the views of the
University of Technology, Sydney. Please refer to our Disclosure Statement in Section 4.

If you have any complaints or reservations about any aspect of your participation in this research which you cannot
resolve with the researcher, you may contact the Ethics Committee through the Research Ethics Officer (ph: +61 2 9514
9772 Research.Ethics@uts.edu.au) and quote the UTS HREC reference number 2010-184A.

Any complaint you make will be treated in confidence and investigated fully and you will be informed of the outcome.

Page 1 of 22
Table of Contents
Table of Contents ................................................................................................. 2
Executive Summary.............................................................................................. 3
1. Introduction.................................................................................................... 6
1.1 Research Approach................................................................................ 7
2. First Phase Results ....................................................................................... 8
2.1 TIO Policy and Practice.......................................................................... 8
2.1.1 Complaints Lodged against consumer wishes ................................ 9
2.1.2 Out of Jurisdiction Complaints....................................................... 10
2.1.3 Consumer Advocacy ..................................................................... 12
2.1.4 Extortion ........................................................................................ 13
2.1.5 Debt Collection.............................................................................. 13
2.1.6 Res Judicata/Ultra Vires................................................................ 13
2.1.7 Cost of Complaints........................................................................ 14
2.2 TIO Satisfaction.................................................................................... 15
2.3 Reporting and Transparency................................................................ 16
2.3.1 Reporting ...................................................................................... 16
2.3.2 Transparency ................................................................................ 17
2.4 Independence ...................................................................................... 17
2.5 Funding Model Conflict of Interest........................................................ 18
2.6 Accountability ....................................................................................... 19
3. Preliminary Summary and Conclusion......................................................... 20
4. Disclosure Statement .................................................................................. 22

Page 2 of 22
Executive Summary
The TIO is a private corporation enacted by parliament as an alternate dispute resolution
mediator between carriage service providers (CSPs) and consumers. The TIO is an
office of last resort which relies on attracting, receiving, investigating and escalating
complaints as its sole source of funding from industry1.

The University of Technology, Sydney has undertaken a two-phased research project to

study the effectiveness of the TIO regime. In the first phase, the project undertook a
large scale survey of CSPs that represent 2.5 million Australian telecommunications
customers. We sought their experience with the practice and policy of the TIO and the
regulatory environment in general. The second phase of research extends to analysing
TIO cases and decisions and their compliance with the Law.

The overall aim of this study is to perform an analysis of the current regime and provide
recommendations on regulatory reform that will benefit consumers by enhancing the
effectiveness of dispute resolution within the Telecommunications industry. We feel that
it is critical that any regulation is cost-effective, efficient and just for all parties because
the cost of regulation is ultimately passed onto consumers both directly and indirectly by
CSPs.

Our study aims to build a balanced, practical view through stakeholder and industry
consultation which will complement recent consumer focused2 studies. The industry has
until recently been silent in this dialog and therefore, we feel it is important for CSPs to
air their grievances and frankly identify and atone for their failures in order to achieve an
outcome which is beneficial for consumers, industry, jobs and ultimately the economy.

Although the TIO was invited to participate in our project on a number of occasions, they
have declined our invitation without providing specific reasons.

While the second phase of our research is not yet complete, we have already uncovered
significant and compelling results which are highly critical of the policy and practice of
the TIO regime.

Our findings have uncovered that of the CSPs surveyed:

(i) Over of 80% are dissatisfied with every aspect of the policy and procedure of
the TIO to such an extent that they believe that neither consumers nor
service providers benefit from its function.

(ii) Over 80% assert that the TIO accepts complaints which are out of
jurisdiction, frivolous or vexatious.

1
Telecommunications Industry Ombudsman (2010), About the telecommunications industry
ombudsman (2010) <http://www.tio.com.au/about_tio.htm> at 20 March 2011.
2
Australian Communications Consumer Action Network, Millions of unhappy customers with telco
problems and complaints (2010) <http://www.accan.org.au/news_item_full.php?id=120> at 31
March 2011

Page 3 of 22
 (iii) Close to 100% assert that the TIO acts as a consumer advocate and
complaints would drop significantly if consumers paid all charges in the event
a judgement was not found in their favour.

Our research and analysis of the policy and procedure of the TIO has uncovered
significant dissatisfaction amongst CSPs with respect to:

(iv) Reporting and Transparency

(v) Compliance

(vi) Funding Model Conflict of Interest

These issues resonate in the allegations made in the statement of claim currently before
the Federal Court in the litigation between CSP Exetel and the TIO3. The serious nature
of allegations should be of concern to regulators and consumers.

Therefore, our interim recommendation is that no increases in jurisdiction or power ought

to be granted to the TIO until the judgement in the Exetel4 is handed down by the
Federal Court.

We do however recognise that a number of simple, interim reforms could be undertaken

immediately to benefit all stakeholders without materially affecting the powers of the TIO
or prejudicing the proceedings.

Our recommendations are as follows:

(vii) Amend TIO policy and/or legislature to cause the TIO to fall under and
comply with Freedom of Information5 including disclosure and publication of
TIO Council and board Meeting minutes and discourse.

(viii) Amend TIO policy and procedure to cease the multiple counting of complaints
in statistics and recommence reporting disposition of complaints.

(ix) Amend TIO policy and procedure to refer to Level 1 Complaints as Contacts
rather than Complaints.

(x) Request the TIO comply with existing policy that requires a complainant
provide evidence that they have attempted to resolve the matter with their
CSP through completion of the CSP Complaints Handling Process as per
section 9 of the TCP code C628:20076 before a Contact is registered. This

3
Exetel Pty Ltd ACN 097 986 546 v Telecommunications Industry Ombudsman Ltd ABN 46 057
634 787 (Unreported, Federal Court of Australia, Buchanan J)
4
Ibid
5
Corporations Act 2001(Cth)
6
Australian Communications and Media Authority, Telecommunications Consumer Protections
Code C628:2007 (2007) Communications Alliance
<http://www.acma.gov.au/webwr/telcomm/industry_codes/codes/c628_2007.pdf> at 30 March
2011

Page 4 of 22
 approach is consistent with other Ombudsman schemes that require a
“deadlock letter” be produced before a complaint may be registered.7

(xi) Request the TIO function within its jurisdiction.

(xii) Fill the accountability void by articulating or creating avenues of external

review for both consumers and CSPs to seek appeals on both merit and
procedural grounds.

Upon the completion of our second phase of research, we will be in a position to make
final recommendations regarding structural reform to the regulatory environment as well
as the TIO.

7
Australian Communications and Media Authority, Reconnecting the Customer (2010) AAPT
submission <http://www.acma.gov.au/webwr/_assets/main/lib311946/105_aapt-
reconnecting_the_customer.pdf> pg. 3 at 30 March 2011

Page 5 of 22
1. Introduction
The TIO is a private, statutory corporation enacted by parliament as the alternate dispute
resolution mediator between CSPs and consumers/small business8. The TIO is an office
of last resort, where consumers may seek assistance in resolving a dispute with a CSP
after they have exhausted all avenues of resolution. Section 128 of the
Telecommunications Act9 requires all CSPs become members of the TIO.

The objective of our research is to analyse the current regulatory framework, the policy
and the practice of the TIO.

The research was initiated by the growing concern of consumers, industry and
regulators at the increasingly large number of complaints registered with the TIO and the
associated extensive media coverage and commentary which has illuminated this
issue10.

Therefore, a key guiding principle of our research is to analyse the statistics and trends
in consultation with industry stakeholders in order to illuminate their experience and gain
perspectives at the real world coal-face implementation of the scheme.

Accessing the perspectives of the consumers was carefully considered at the project
design stage in order to achieve a balanced investigation but unfortunately, we lack the
necessary resources to reach to a large scale of consumers without the cooperation of
the TIO. We will, however, instead rely upon the input from the consumer focused
research commissioned by ACCAN11 to assist us in forming a measured and balanced
conclusion.

While the commencement of the research predated the Australian Communication and
Media Authority’s (ACMA) Reconnecting with the customer12 public inquiry, our research
does consider this inquiry, the recent High Court case Kirk v Industrial Relations
Commission13 and the current Exetel14 matter before the Federal Court as key inputs into
framing the research approach and context from a regulatory and legal perspective.

8
Telecommunications Industry Ombudsman (2010), About the telecommunications industry
ombudsman (2010) <http://www.tio.com.au/about_tio.htm> at 20 March 2011.
9
Telecommunications Act 1997 (Cth).
10
Stuart Corner, TIO complaints figures: the good, the bad and the ugly (2010) ITWire,
<http://www.itwire.com/it-policy-news/regulation/43692-tio-complaints-figures-the-good-the-bad-
and-the-ugly> at 31 March 2011
11
Australian Communications Consumer Action Network, Millions of unhappy customers with
telco problems and complaints (2010) <http://www.accan.org.au/news_item_full.php?id=120> at
31 March 2011
12
Australian Communication and Media Authority (2011)
<http://www.acma.gov.au/WEB/STANDARD/pc=pc_312222> at 21 March 2011
13
Kirk v Industrial Relations Commission of New South Wales (2010) 239 CLR 531
14
Exetel Pty Ltd ACN 097 986 546 v Telecommunications Industry Ombudsman Ltd ABN 46 057
634 787 (Unreported, Federal Court of Australia, Buchanan J)

Page 6 of 22
In Kirk,15, a matter on appeal to the High Court from the Industrial Court of NSW,
Heydon J raised a number of concerns regarding the creation and operation specialist
courts and tribunals, of which the TIO could be considered one.

In his judgement, Heydon J stated "A major difficulty in setting up a particular court . . . is
that the separate court tends to lose touch with the traditions, standards and mores of
the wider profession and judiciary."

Specialist courts, his honour went on to say, "tend to become over-enthusiastic about
vindicating the purposes for which they were set up . . . They tend to feel that they are
not fulfilling their duty unless all, or almost all, complaints that that mischief has arisen
are accepted."

Therefore, as part of our research, we hope to ascertain if the large numbers of

complaints before the Ombudsman are a result of over enthusiasm, comprehensive
failure on the part of the Telecommunications industry or some combination there-of.

In Exetel, the Applicant, a very large carriage service provider is alleging that the TIO
has mishandled numerous complaints resulting in breaches of duty of care, contract,
s.140 of the Corporations Act16, and s.128 of the Telecommunications (Consumer
Protection and Service Standards) Act17.

The matter is set down for directions on 6 May 2011 at the Sydney registry of the
Federal Court.

1.1 Research Approach

Our research is based upon a two phased approach.

In the first phase, we offered all CSP members of the TIO scheme an opportunity to give
their feedback in a detailed, anonymous survey. Our first phase research is completed.

In the second phase of our research, we have engaged with senior executives and
complaints officers at CSPs in order to gain their perspective of the scheme and review
actual TIO cases to gain further insight into the nature and compliance of both parties in
the ADR process. Our second phase research is still in progress.

15
Ibid
16
Corporations Act 2001 (Cth.)
17
Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cth.)

Page 7 of 22
2. First Phase Results
The first phase anonymous survey ran between 12 December 2010 and 31 January
2011. The survey contained 81 questions of either standardized or short text responses
split into the areas of:

(i) TIO Policy and ADR Rules

(ii) TIO Procedure and ADR Services

(iii) Complaint Handling

(iv) Consumer Behaviour

(v) Cost of Complaints

(vi) Debts

(vii) Regulation

(viii) SFOA and Contracts

We were very pleased that a significant number of TIO members responded

representing in excess of 2.5 million Australian telecommunications customers.

There was also representation in all of the Australian Bureau of Statistics CSP size
classifications of Very large, Large, Medium, Small and Very Small18. The respondents
included numerous members with more than 100,000 customers including one CSP who
is placed amongst the top three service providers in Australia.

2.1 TIO Policy and Practice

A summary of key results from the survey of TIO members regarding their experiences
with TIO complaints is as follows:

(a) 58% of CSPs have experienced one or more complaints lodged against their
organisation against the express wishes of the complainant/consumer.

(b) 77% of CSPs have experienced the TIO accept complaints that were in their
opinion out of jurisdiction.

(c) 71% of CSPs have indicated that they do not believe the services provided by
the TIO represent good value for money.

18
Australian Bureau of Statistics (2010), Internet Activity, Australia
<http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/8153.0Explanatory%20Notes1Jun%20201
0?OpenDocument>, at 1 November 2010

Page 8 of 22
 (d) 87% of CSPs have indicated that they have experienced the TIO act as a
consumer advocate rather than an impartial mediator.

(e) 61% of CSPs have indicated that they have experienced TIO officers make
decisions in contradictory ways.

(f) 81% of CSPs have indicated that they have experienced cases where
consumers have used the TIO as an instrument of extortion to demand
something for which they had no entitlement.

(g) 96% of CSPs have indicated that complaint handling fees payable by the
consumer in the event the case was not found in their favour would discourage
extortion and complaints made in bad faith.

(h) 51% of CSPs have indicated that they have stopped lawfully collecting duly
owed debts because of a fear or TIO complaints.

(i) 77% of CSPs have indicated that both consumers and industry do not benefit
from the current regulation performed by the TIO.

(j) 81% of CSPs have indicated they would prefer a formal legal tribunal replace
the TIO.

(k) 45% of CSPs would welcome more formal and rigid regulation.

The results show that there is wide dissatisfaction and that industry has numerous
issues with respect to the policy and practice of the TIO.

A number of matters of key issues arose from both survey short answer responses and
case information we received from CSPs to support their position. In order to investigate
these further, we have characterised them into groups.

2.1.1 Complaints Lodged against consumer wishes

A key area of concern for both consumers and CSPs alike is that more than half of the
CSPs surveyed have experienced complaints lodged against them by the TIO against
the express wishes of the consumer.

We have been provided some examples of these complaints which broadly fall into three
categories.

Infrastructure Issues

We have sighted a number of complaints where the consumer is located in an area with
insufficient telecommunications infrastructure. In these cases, the consumer is generally
either a broadband Internet subscriber experiencing slow Internet speeds because they
are in a congested exchange area or alternatively they are unable to obtain a broadband
Internet service at all due to a lack of infrastructure.

Page 9 of 22
In these cases cited, we have seen that the complainant specifically ask that the
complaint be placed against the infrastructure supplier but are forced instead by the TIO
to lodge the complaint against the retail CSP as a result of the bill the biller policy19.

In this situation, neither the consumer nor the retail CSP benefit from TIO involvement as
neither party is able to perform any action to remedy the matter and CSP is left with a
sizeable fee from the TIO.

Transfer Issues

We have sighted a number of complaints where the consumer is attempting to transfer a

service from one provider to another. In these cases, against the wishes of the
complainants, the TIO has lodged complaints against the wrong provider by strictly
applying their telephone transfer delays policy20 to numerous other types of services.

In this situation, neither the consumer nor the retail CSP benefit from TIO involvement as
the party capable of resolving the matter is not included in the dialog. A number of CSPs
have stated that they have successfully had such complaints redirected to the most
appropriate CSP but not without considerable effort and expense. In either case, the
consumer is significantly disadvantaged and the CSP is left with a sizeable fee for
actions unrelated to them.

Undue pressure or incorrect advice

We have sighted at least one complaint where a TIO officer pressured a consumer who
called up for general advice to make a complaint, stating that it would only be used for
“statistical purposes” and that no complaint would be registered.

We have sighted other complaints where the TIO has provided incorrect advice that
lodging a complaint would in some way change an outcome of an event or decision
where it is clear prima facie that this was not physically possible or within jurisdiction.

2.1.2 Out of Jurisdiction Complaints

One of the most consistent and vocal concerns from CSPs has been acceptance and
escalation of alleged out of jurisdiction complaints by the TIO. We have sighted a
number of complaints that prima facie appear to fall out of the jurisdiction as defined in
the TIO Constitution21.

19
Telecommunications Industry Ombudsman (2011), Funding Arrangements
<http://www.tio.com.au/policies/funding%20arrangements.htm> at 29 March 2011
20
Telecommunications Industry Ombudsman (2011), Telephone Transfers,
<http://www.tio.com.au/POLICIES/Transfers/Churn_porting_preselection%20delays.htm> at 29
March 2011
21
Telecommunications Industry Ombudsman (2011), Constitution
<http://www.tio.com.au/LIBRARY/documents/TIO%20Constitution.pdf> at 31 March 2011

Page 10 of 22
We can broadly characterise these complaints into the following categories:

First Contact Complaints

The rising number of first contact complaints is a common concern amongst CSPs22 and
we have sighted numerous examples of such complaints. A first contact complaint is a
complaint where the consumer has not made any attempt to raise or resolve the matter
with the CSP first.

We have sighted a number of first complaints in our case study reviews, including some
where consumer has explicitly stated to the TIO that they had not contacted the CSP
regarding the matter.

The concern regarding first contact complaints was raised by a number of CSPs in their
submissions to the ACMA Reconnecting the Customer public inquiry23 24.

Complaints beyond the network termination point

We have sighted a number of complaints which appear to all have the same theme.
These complaints are generally regarding fee for service charges for faults detected by
infrastructure technicians beyond the network termination boundary. The network
termination boundary is defined in s.22 of the Telecommunications Act25.

In the cases we have sighted, the TIO has not only accepted and escalated such cases
but also adopted a position that notes from technician and linesmen describing that the
fault was found outside the network boundary were insufficient evidence to support the
position of the responding CSPs and therefore, any charges ought to be waived.

In some of the cases where the CSP has questioned jurisdiction, the TIO has indicated
that the matters were heard under the guise of ‘customer service’.

The settings of tariffs

We have sighted a number of complaints that broadly fall in the area of setting of tariffs
including complaints where the consumer requested as a resolution:

• The cost of a service ought to be reduced so people who are unemployed can
afford it
• The cost of relocating a service to a new address ought to be waived

22
Australian Communications and Media Authority, Reconnecting the Customer (2010) VHA
submission
<http://www.acma.gov.au/webwr/_assets/main/lib311946/95_vodafone_hutchison_australia-10-
09-10-reconnecting_the_customer.pdf> pg. 14 at 30 March 2011
23
Ibid
24
Australian Communications and Media Authority, Reconnecting the Customer (2010) AAPT
submission <http://www.acma.gov.au/webwr/_assets/main/lib311946/105_aapt-
reconnecting_the_customer.pdf> pg. 3 at 30 March 2011
25
Telecommunications Act 1997 (Cth).

Page 11 of 22
 • There should not be a fee to change plan
• A service should be provided on the same commercial terms but with a different
contract length more suitable to the individual needs of the complainant

Commercial activities which do not include the provision of carriage services

We have sighted a number of complaints that broadly fall in the area of activities that do
not include the provision of a carriage service.

In particular, one example complaint described to us by a CSP was related to the

provision of a bonus gift (a non-telecommunications homeware item) upon subscription
to a consumer service.

The gift was delivered one day after the proposed delivery date. The consumer
demanded another free gift for the ‘inconvenience’ of not receiving his gift on time but
the CSP, for obvious reasons, declined. The TIO accepted and escalated the complaint
on the basis that it was related to ‘customer service’.

Frivolous and Vexatious Complaints

We have sighted a very large number of complaints which have been characterised by
CSPs as frivolous and vexatious. One particular example of a complaint is that of a
consumer who refused to pay his bill and then lodged a complaint with the TIO against
when he became aware that the CSP in question had provided evidence to the
Australian Federal Police in relation to a warrant in an unrelated criminal proceeding
against the consumer.

The CSP stated the TIO continued to escalate and hear the matter without regard to
their position.

Another example related to the provision of a refund of close to $1000 to the wrong
customer. The incorrectly credited customer refused to admit to receiving the funds
despite being presented with a bank trace to that effect. The consumer went on to state,
that if he did receive the money, he would only pay it back $20 per week. The CSP
persisted with requesting the money be returned. In retaliation, the consumer lodged a
complaint with the TIO citing harassment and poor customer service. The TIO was
provided evidence of the bank trace and found in favour of the CSP but not until the
matter had reached Level 2 and cost the CSP hundreds of dollars in complaint handling
fees.

2.1.3 Consumer Advocacy

A common theme in the responses for CSPs, is that they believe the TIO fails in its
objective to act as a fair and impartial alternate dispute resolution arbiter and instead
acts as a consumer advocate.

In particular, a number of CSPs have stated that they have received advise from TIO
officers that despite the fact they agreed that a consumer’s position was invalid or flawed
in a particular case, the CSP ought to settle the matter as the TIO will otherwise escalate

Page 12 of 22
it and increase complaint handling fees until the consumer is satisfied, no matter how
unjust the outcome must be to obtain that satisfaction

2.1.4 Extortion

A consistent theme from all the CSPs surveyed is that a TIO complaint is often used by
unscrupulous consumers as leverage in order to gain benefits for which they are not
entitled.

In particular, a number of CSPs state they regularly experience consumers use the TIO
to get out of contracts without penalty (so they might change to other service providers
that have a better deal) by exploiting the fact that an average Level 2 complaint will incur
greater cost to the CSP than waiving the early termination fee.

These themes are echoed in the VHA submission to the Reconnecting the Customer
inquiry that asserted that a proportion of its complaints were received by consumers
using the process to try and obtain a free upgrade to an iPhone 426.

2.1.5 Debt Collection

Over 50% of CSPs that responded to our survey stated that they stopped collecting
lawfully owed debts due to fear of the costs associated with TIO complaints.

One CSP stated that 100% of complaints recorded against them in the last year were
simply consumers trying to have legitimate bills waived.

This should be of great concern to consumers, as the cost of bad debts will be passed
on to them in form of increased monthly fees or reduced service value.

2.1.6 Res Judicata/Ultra Vires

We have been informed by a number of CSPs of situations where the TIO accepted and
escalated a complaint regarding a matter that had already been judged in a court of
competent jurisdiction.

In all cases described to us by CSPs, these matters were related to debts. The CSPs
stated to us that the TIO argued that the Court judgement pertained only to the debt, not
how the debt was accrued and therefore, they would continue to investigate and make a
judgement on the matter.

It was not until the CSPs in question engaged solicitors to deal with the TIO on these
matters that they then ceased investigation. In some cases, the CSPs stated to us that
the TIO still charged for the aborted the investigation.

26
Ry Crozier, VHA sees record complaints before iPhone 4 Launch (2010) IT News
<http://www.itnews.com.au/News/233429,vha-sees-record-complaints-before-iphone-4-
launch.aspx> at 31 March 2011

Page 13 of 22
2.1.7 Cost of Complaints

Over 70% of the CSPs that responded indicated that they think the TIO provides
services which are poor value for money. A complaint of average complexity that
requires formal investigation by the TIO generally reaches Level 3. This means that it in
the course of the complaint lifecycle, the matter will have been billed and reported at
least once as a Level 1 complaint, then a Level 2 and then a Level 3.

Therefore, the minimum cost of a complaint of average complexity is at least $766

without volume related fees. Including volume related fees the cost would generally be
around $1000.

The TIO charges members on a cost recovery basis, which means that even if the
matter is not found in their favour, and sometimes even if the matter is out of jurisdiction,
the CSP will be liable for the complaint handling charges.

The graph in Figure 1 - Comparison of charges and profit shows the magnitude in cost of
average formally investigated TIO complaints compared to the annual gross profit before
fixed costs of a telecommunications service from a leading very large CSP.

$995.80

$1,000.00
$900.00
$800.00
$700.00
$600.00
$386.10
$500.00
$400.00
$300.00 $163.70

$200.00
$100.00
$0.00
Level 2Complaint Level 3Complaint Averageprofit per subscriber
over 12months

Figure 1 - Comparison of charges and profit

It would take over 6 years of continuous custom in order to break even on a customer
who lodges an average complaint of average complexity which reaches Level 327. For
smaller members, this break-even period would be much greater as their margins are
much lower.

As CSPs are not permitted to recover their costs with respect to the complaint even if the
complaint is found in their favour, these charges are ultimately passed onto consumers
as higher fees and tariffs.

27
iiNet, Results for the year ended 30 June 2010 (2010),
<http://investor.iinet.net.au/IRM/Company/ShowPage.aspx/PDFs/1317-
32472550/PresentationFullYearResults> at 30 March 2011

Page 14 of 22
In the survey, a number of CSPs stated they built-in the cost of TIO charges into all their
cost modelling used to set their plan and product fees.

It is therefore imperative for consumers that the fees levied by TIO are both appropriate
and fair.

2.2 TIO Satisfaction

A summary of key results from our CSP survey with respect to their satisfaction with the
implementation of the TIO scheme is as follows:

(a) 84% of CSPs have indicated that they are dissatisfied or very dissatisfied with
the alternate dispute resolution services the TIO provides.

(b) 77% of CSPs have indicated that they are dissatisfied or very dissatisfied with
the technical industry knowledge the TIO possesses.

(c) 87% of CSPs have indicated that they are dissatisfied or very dissatisfied with
the fairness of TIO policies and procedures.

(d) 87% of CSPs have indicated that they are dissatisfied or very dissatisfied with
the fairness of TIO decisions.

(e) 71% of CSPs have indicated that they are dissatisfied or very dissatisfied with
the escalation policies of the TIO.

(f) 77% of CSPs have indicated that they are dissatisfied or very dissatisfied with
the regulatory functions performed by the TIO.

The results show that there is wide dissatisfaction and that industry has numerous
issues with respect to the policy and practice of the TIO.

As part of the survey, we also asked participants if they were dissatisfied with the TIO,
what steps they undertook to try and resolve or escalate the issues in order to reach a
resolution.

Many respondents indicated that they did not escalate matters further because they
either were unaware of the avenues of escalation or because they were concerned that
further escalation might result in retaliatory action. Some respondents stated that their
requests to the TIO regarding what external avenues of appeal may exist remain
unanswered.

A number of the medium to very large sized respondents indicated that they had either
met with the Ombudsman or other senior leaders in the TIO to air their grievances or
have engaged solicitors to negotiate or commence legal action on their behalf.

One very large sized member stated that they had contacted the Commonwealth
Ombudsman regarding matters relating to the TIO but were told that it did not have
jurisdiction to review either decisions or the operation of the TIO.

Page 15 of 22
A review of both the legislation and constitution which underpin the TIO reveals that
there are no prescribed external avenues in which a consumer or CSP may seek to
appeal a decision made by the TIO either on merit or procedural grounds.

In particular, it would appear that decisions made by the TIO are not reviewable by the
Administrative Appeals Tribunal and there are no test cases with respect to judicial
review of decisions in any federal or state jurisdiction on grounds of either merit or
procedure.

In the second phase of our research, we have engaged directly with CSP senior
managers and complaints officers in order to gather their perspectives on the policy and
practice of the TIO and analyse actual TIO cases.

While this research is currently in progress, and not complete, we cannot provide any
conclusions, we can however instead identify what we have observed to date in a
number of key areas raised by the Department call for papers.

2.3 Reporting and Transparency

2.3.1 Reporting

The TIO has gained numerous headlines by publishing that they received 168,000
complaints in the 2010 year28.

However, an analysis of those complaint numbers shows that there are actually much
fewer complaints received.

The TIO counts complaints numerous times when producing its statistics, so a Level 3
complaint, would be counted no less than 3 times and perhaps up to even 5 times in the
statistics29.

Given that a Level 1 complaint has no investigation or validation, it would seem

inappropriate to refer to these as complaints, but rather as contacts.

Therefore, this leaves 413 Level 4 cases, 3,789 Level 3 cases and 19,860 Level 2 cases
of which when normalised for multiple-counting means, that the TIO actually handled
413 Level 4 complaints, 3,376 Level 3 complaints and 15,658 Level 2 complaints.

28
Stuart Corner, TIO complaints figures: the good, the bad and the ugly (2010) ITWire,
<http://www.itwire.com/it-policy-news/regulation/43692-tio-complaints-figures-the-good-the-bad-
and-the-ugly> at 31 March 2011
29
Brett Winterford, Telco questions TIO complaint count (2010) ITNews,
<http://www.itnews.com.au/News/172718,telco-questions-tio-complaint-count.aspx> at 31 March
2011

Page 16 of 22
Therefore, a more appropriate figure would be that the TIO investigated 19,447
complaints in 2010.

Further, in 2008, the TIO ceased reporting on the distribution of how complaints are
adjudicated in terms of being in favour of consumers, CSPs, etc. The last set statistics
published in the 2007 annual report30 indicate that neutral outcomes were approximately
53%.

It is not clear what a neutral outcome is despite the description, but it would appear that
it is a result that favours neither the consumer nor the CSP. This may mean that more
than half of the complaints processed by the TIO result in no discernable outcome for
either the consumer or CSP.

2.3.2 Transparency

The surveyed CSPs raised a number of issues with respect to transparency.

In particular, that:

• The TIO is not subject to Freedom of Information legislation

• Minutes from TIO Council and Board meetings are secret
• TIO Council members are bound by strict confidentiality
• TIO Board members are bound by strict confidentiality
• TIO Council members are legally obliged to act in the best interests of the TIO
even if this is to the detriment of consumers or CSPs

The CSPs surveyed express frustration that they were unable to discuss operational
matters with their elected members on the council and did not have any visibility of the
policy and operational dialog within the TIO.

2.4 Independence

The independence of the scheme is sometimes questioned on the basis that

Ombudsman is an agent of industry because it is funded by industry and its board of
directors consists predominately of industry members31. However, the observed
universal discontent in industry with the scheme ought to finally put such rhetoric to rest.

The TIO has a tripartite governance structure consisting of a board overseeing fiduciary
duties, a council overseeing policy matters and the ombudsman overseeing the
execution of the ADR function.

30
Telecommunications Industry Ombudsman, Annual Report 2006/2007 (2007),
<http://www.tio.com.au/publications/annual_reports/ar2007/PDF/PartTwo.pdf> at 31 March 2011
31
David Hyatt, Opinion: Telcos need to address TIO disquiet (2010) IT News: Haymarket Media,
<http://www.itnews.com.au/Tools/Print.aspx?CIID=238301> at 20 March 2011
Conrad Walters, Ringing in changes (2010), Sydney Morning Herald: Fairfax Media,
<http://www.smh.com.au/money/ringing-in-changes-20101207-18ngl.html> at 20 March 2011

Page 17 of 22
The council consists of equal numbers of elected industry and consumer representatives
with an independent chair. In many ways, the structure mimics that of the classic
separation of powers with a legislature (council), judiciary (ombudsman) and executive
(board of directors).

The three former ombudsmen recommended the collapse of the governance into a
single board in their submission to the ACMA reconnecting the customer inquiry32
however it is unclear as to how this would be of significant benefit to the scheme given
that board members are primarily concerned with fiduciary and compliance matters while
council members are predominately concerned with matters of policy. While the two are
not by any means mutually exclusive, the tripartite management structure allows
persons with specific interests and skills in each area to apply them without burden or
distraction.

Given that the minutes of the board and council meetings are secret, it is difficult for
anyone outside the TIO to determine if the structure is successful and it would be
preferable to at least assess the capability and performance of the current structure
before making structural change.

2.5 Funding Model Conflict of Interest

As described in previous sections, the TIO receives its funding as a result of the
reception, investigation and escalation of complaints. The TIO is also able to raise a
33
special levy against its members to cover any funding deficit or capital program .

Theoretically, the funding model is a perfect regulatory instrument to reward CSPs which
do not receive complaints or resolve them expeditiously and punish those rouge CSPs
who attract numerous complaints or fail to adequately resolve them. There is no doubt
that there are rouge CSPs in the industry worthy of punishment.

However, in practice, the funding model creates a conflict of interest because it lacks the
controls to address how the tenure and operation of the TIO might continue if complaints
recede or dwindle. Further, it contains no provisions to actively reward the TIO for
reduction in complaint numbers and escalations. Therefore, a number of CSPs have
asserted that it is in the TIO’s interest for the organisation to receive and escalate as
34
many complaints as possible .

Further, a number of CSPs stated in their survey responses that it was their experience
that the TIO undertook steps to attract (TV advertising, ‘how to complain packs’ handed

32
Australian Communications and Media Authority, Reconnecting the Customer (2010) Cleary,
O’Donnell, Pinnock submission
<http://www.acma.gov.au/webwr/_assets/main/lib311946/126_cleary_odonnell_pinnock-
reconnecting_the_customer.pdf> pg. 3 at 30 March 2011
33
Telecommunications Industry Ombudsman, Funding Arrangements (2010)
<http://www.tio.com.au/policies/funding%20arrangements.htm> at 30 March 2011
34
Australian Communications and Media Authority, Reconnecting the Customer (2010) Beagle
submission <http://www.acma.gov.au/webwr/_assets/main/lib311946/122_beagle-
reconnecting_the_customer.pdf> pg. 3 at 30 March 2011

Page 18 of 22
out at Universities, etc) and escalate complaints in a manner which was in its own best
interests and not in the interests of consumers, industry or regulators.

This type of funding model is consistent with other Ombudsmen schemes but varies
significantly from that of any independent court, tribunal or alternate dispute resolution
scheme in that the tenure and stature of the entity, its staff and management does not
rely on the volume of cases before them. One does not see the Small Claims division of
the NSW Local Court advertising its services in the mass media as a service to recover
money or resolve fencing disputes.

As the TIO functions predominately as a judiciary, one might argue that it should also in
many ways, act like a judiciary.

There are a number of potential reforms to the funding model which could address this
perceived conflict without structural regulatory change. These could include:

• Payment of a nominal fee by consumers to lodge a complaint in the order of

magnitude of other consumer focused courts and tribunals such as the NSW
CTTT35. For example:

CTTT Application Type Cost

Claim or dispute not exceeding $10,000 $35.00
Claim or dispute between $10,000 and $30,000 $72.00
Pensioners and students (all applications) $5.00

• Government funding for processing of complaints (potentially funded by carrier

license fees) and instead application of pecuniary penalties to CSPs for non-
compliance with industry codes.

We believe that it is critical that any reform to the funding model also simultaneously
address the issue raised by CSPs of the alleged wide-spread extortion by unscrupulous
consumers that use the funding model of the TIO scheme as leverage to obtain benefits
for which they are not entitled or release themselves from obligations.

At this stage of the research, we are not in a position to recommend any particular model
for funding reform or assess the merits of any of the aforementioned examples.

2.6 Accountability

A common theme in the responses from CSPs is that they believe the TIO lacks
accountability because its decisions, policy and practice are not reviewable by any
external entity. Further, the CSPs have stated that as council and board meetings are
secret, they are unable to ascertain any information regarding the manner in which the
organisation they fund is operated.

35
Consumer, Trader and Tenancy Tribunal, Fees and charge (2011),
<http://www.cttt.nsw.gov.au/Applications/Fees_and_charges.html> at 31 March 2011

Page 19 of 22
Therefore, a key measure to address this discontent from members and presumably
consumers alike would be for the TIO to lift the veil of secrecy on its management and
operation and avail itself to external review.

3. Preliminary Summary and Conclusion

It is clear from the survey results, that industry is extremely dissatisfied with the policy
and practice of the TIO.

Further, industry has framed this dissatisfaction with respect to their customers, stating
that the TIO is failing to provide fair and economical resolution of complaints.

These results appear to be inconsistent with oft repeated assertion that the Ombudsman
is an agent of industry because it is funded by industry and its board of directors consist
predominately of industry members36. If the hypothesis were to be true, unilateral
contentment with the scheme would be expected.

Our interim recommendation is that no increases in jurisdiction or power ought to be

granted to the TIO until the judgement in the Exetel is handed down as the serious
nature of allegations must be taken into consideration.

However, we do still recognise that a number of simple, interim reforms may be

undertaken immediately to benefit all stakeholders without materially affecting the
powers of the TIO or prejudicing the proceedings.

Our recommendations are as follows:

(i) Amend TIO policy and/or legislature to cause the TIO to fall under and
comply with Freedom of Information37 legislation including disclosure and
publication of TIO Council meeting minutes and discourse.

(ii) Amend TIO policy and procedure to cease the multiple counting of complaints
in statistics.

(iii) Amend TIO policy and procedure to refer to Level 1 Complaints as Contacts
rather than Complaints.

(iv) Request the TIO to comply with existing policy that requires a complainant
provide evidence that they have attempted to resolve the matter with their
CSP by completing their Complaints Handling Process as per section 9 of the

36
David Hyatt, Opinion: Telcos need to address TIO disquiet (2010) IT News: Haymarket Media,
<http://www.itnews.com.au/Tools/Print.aspx?CIID=238301> at 20 March 2011
Conrad Walters, Ringing in changes (2010), Sydney Morning Herald: Fairfax Media,
<http://www.smh.com.au/money/ringing-in-changes-20101207-18ngl.html> at 20 March 2011
37
Corporations Act 2001(Cth)

Page 20 of 22
 TCP code C628:200738 before a Contact is registered. This approach is
consistent with other Ombudsman schemes that require a “deadlock letter”
be produced before a complaint may be registered.39

(v) Request the TIO function within its jurisdiction.

(vi) Fill the accountability void by articulating or creating avenues of external

review for both consumers and CSPs to seek appeals on both merit and
procedural grounds.

Upon the completion of our second phase of research, we will be in a position to make
final recommendations regarding structural reform to the regulatory environment as well
as the TIO.

38
Australian Communications and Media Authority, Telecommunications Consumer Protections
Code C628:2007 (2007) Communications Alliance
<http://www.acma.gov.au/webwr/telcomm/industry_codes/codes/c628_2007.pdf> at 30 March
2011
39
Australian Communications and Media Authority, Reconnecting the Customer (2010) AAPT
submission <http://www.acma.gov.au/webwr/_assets/main/lib311946/105_aapt-
reconnecting_the_customer.pdf> pg. 3 at 30 March 2011

Page 21 of 22
4. Disclosure Statement
The authors of this discussion paper make the following disclosures:

(i) This submission to the DBCDE consultation on TIO reforms was solicited by Ms
Emma Shadbolt, Assistant Director of Consumer Policy & Privacy at the
Department of Broadband, Communications and the Digital Economy on 15
March 2011.

(ii) The views expressed in this paper represent those of the researchers only and
do not represent the views of the University of Technology, Sydney.

(iii) The research contained in this paper is based upon information supplied by
participating carriage service providers which we believe to be true.

(iv) The recommendations made in this paper are subject to change upon completion
of our research.

(v) The authors of this paper hold shares and securities in a number of Australian
carriage service providers.

(vi) The primary investigator, Liam Widdowson is actively employed in senior

positions in the Australian Telecommunications industry. Some of the research
contained in this submission forms part of a postgraduate coursework project.

(vii) Nerida Caesar, Group Managing Director, Telstra Corporation Limited is a

member of the University of Technology’s Vice Chancellor’s Industry Advisor
Board.

(viii) The Faculty of Engineering and IT has received research grants for an unrelated
project (“Web-based Telecom Service Recommendation System for Optus
Potential SMB Customers”) in the year 2011 from carriage service provider
Singtel Optus.

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